Private markets funds have continued to rake in new commitments from institutional investors eager to diversify their portfolios and capture the returns private markets investments can offer. However, investors are now tempering their private markets return expectations.
Coupled with other industry trends, this will have implications for private markets fundraising and due diligence, according to a new eVestment report, produced in association with parent company Nasdaq.
The 2019 eVestment Private Markets Due Diligence Survey of institutional investors, consultants and private markets fund managers finds that 52 per cent of investors expect returns in the space to decline in the future (page 16). Only 12 per cent of investors expected private equity returns to increase, with the balance – 36 per cent – expecting returns to stay about the same.
Forty-seven percent of investors surveyed expect to see lower returns in venture capital vs. just 16 per cent of investors who expect returns to increase. And in real estate, 41 per cent of investors expect to see lower returns vs. 14 per cent who expect returns to increase.
Another interesting point from the report is the apparent mismatch between fund managers’ desire to find new investors, and investors’ desire to reduce or keep stable the number of fund managers with which they work (page 18). In the survey, three out of four fund managers indicated they plan to increase their investor base, while three out of four investors indicated they actually plan to maintain or decrease the number of fund managers with which they work.
“Due diligence remains the foundation for investors looking to build a quality portfolio and generate above market returns,” says Graeme Faulds, Director of Product – Private Markets at eVestment. “With the majority of survey respondents’ outlook for returns to be flat at best, and a desire from investors to consolidate manager relationships, due diligence processes are only going to become more critical for both sides of the table. The need for fund managers and investors to embrace better data and technology to help them navigate this reality has never been more important.”